AMC Stock Will Not Benefit Massively From Hycroft Investment

AMC (NYSE:AMC) stock saw a strong surge after it announced its investment in a Nevada-based gold and silver mining company, Hycroft Mining Holding Corporation (NASDAQ:HYMC). It is another surprising chapter in the AMC saga, which shows no signs of fading to the background. However, analysts are still looking for strong fundamentals.

Image of the entrance of an AMC Entertainment (AMC) branded theater.
Source: Helen89 / Shutterstock.com

AMC has been struggling for a while now. They are trying to adapt to the changing landscape of cinema, but it has proven difficult for them to compete with streaming services like Netflix (NASDAQ:NFLX) and Amazon’s (NASDAQ:AMZN) Amazon Prime Video.

However, Redditors saved AMC from the brink. Now that AMC is cash-rich and free of debt, it should have returned to penny stock status. Redditors, though, have other ideas. Despite signs indicating that the ride is over for AMC stock, the stock remains elevated.

AMC’s Confusing Role as a Savior for a Troubled Miner

Several companies owe Reddit a lot for stock action that happened last year. However, few companies have become as synonymous with r/WallStreetBets as AMC or GameStop (NYSE:GME).

Although the core support for these meme stocks remains strong, prices are beginning to cool down as investors head for greener pastures. Under these circumstances, AMC needs to keep giving investors some reason to stay invested. The latest piece of news is AMC investing in Hycroft Mining, which took some people by surprise.

Hycroft Mining has had a rough time since debuting on the market through a reverse merger with Mudrick Capital Acquisition Corp., a blank check company affiliated with hedge fund manager Jason Mudrick, in 2020.

Interestingly, the company also became a target for meme stock traders. The connections do not end there. Jason Mudrick was also one of the main voices that asked AMC to issue shares and exploit the opportunities Redditors had bestowed upon the company. Therefore, there is more than a passing association between Hycroft and AMC.

However, even considering these factors, the recent move is strange. Although AMC Entertainment has branched out into other areas such as crypto, it remains a movie theatre operator first and foremost. AMC is selling the pivot toward mining as an exercise in financial expertise.

Hycroft, AMC argues, is in a similar boat that AMC was until a year ago. Therefore, they have the financial credentials to navigate these troubled waters to safer shores. Part of that strategy has already been laid out. The company will rake in $500 million from equity offerings. However, beyond that, what AMC will do to help the company remains to be seen.

Making Sense of the Investment

There are a few ways to see the latest investment. The bears will argue that it is another way for AMC to stay relevant in the eyes of Redditors, which is its main constituency. Tom Holland and Zendaya’s Spider-Man: No Way Home helped ring the box office registers, bringing much-needed respite for AMC in the fourth quarter.

Apart from the latest Spiderman outing, The Batman and Uncharted helped, as well. Apart from that, there was little reason for AMC bulls to cheer. Therefore, AMC stock needed a boost, and voila, we have the Hycroft announcement.

On the other hand, the bulls argue that gold is a store of value. There are many reasons why gold is a good investment for companies.

Gold can be used to store wealth in times of crisis, such as during the Great Depression or the financial crisis in 2008. Gold also offers protection and stability during uncertain economic times and periods of high inflation, like those experienced by Argentina during its 2001 economic collapse.

Palantir (NYSE:PLTR), the data analytics company, is a recent example of a company that invested in gold to hedge against volatility. So, unconventional moves are not uncommon in the financial markets and there is precedence for AMC’s thinking.

Some might argue that this is a match made in meme-stock heaven. Reddit has targeted both AMC and Hycroft. Therefore, the tie-up makes sense. And it might attract even more retailer interest.

AMC Stock Continues to Defy Logic

It is hard to look at the latest announcement and not scratch your head. AMC has recently thrown everything but the kitchen sink at the investing world, hoping something will stick. At some point, though, fundamentals will catch up to the stock.

The company’s new role as a financial advisor is a bit surreal. A few months ago, management itself was under pressure to stay afloat. Now, the shoe is on the other foot and it is doling out advice to others on how it should use Reddit to secure a financial escape. Ultimately, it has not done enough to ensure institutional investors take AMC seriously again.

That is not to say companies cannot mount a comeback from a failed position. They need to shift the focus toward other aspects of their business. For example, Nokia (NYSE:NOK) has become a relatively stable performer after years of being a classic case study of how companies lose market share from a commanding position. However, AMC hasn’t given enough evidence that it is the next Nokia. Until it does so, it will remain a risky enterprise.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.


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